What is an annuity?

An annuity is a financial product, usually from an insurance company, that pays you a regular income, monthly, quarterly or yearly, in exchange for a lump sum or a series of payments.

It is often used for retirement income, giving guaranteed payments for life or a fixed period. Under NPS, part of the corpus must be used to buy an annuity at retirement.

The advantage is predictable income; the disadvantages include relatively low returns, and annuity income is taxable. Compare options like joint-life annuities and return of purchase price before buying.